Do the type and number of blockholders influence R&D investments? : new evidence from Spain

Using data from 3,638 Spanish firms between 1996 and 2000, this article studies the relationship between the presence of large shareholders in the ownership structure of firms and R&D investment. Consistent with our theoretical contention, our results indicate that the impact of large shareholders on the R&D investment is (1) negative when blockholders are banks, (2) positive when blockholders are non-financial corporations and (3) null when blockholders are individuals. In addition, we find a systematic negative relationship between the number of blockholders and R&D investment. Finally, we extend our study by analysing the influence that the combined effect between blockholder type and R&D investment has on the firm’s economic performance. Results of this work provide relevant implications for policy makers and academic research.Publicad

Bank insolvencies, priority claims and systemic risk

We review an extensive literature debating the merits of alternative priority structures for banking liabilities put forward by financial economists, legal scholars and policymakers. Up to now, this work has focused exclusively on the relative advantages of each group of creditors to monitor the activities of bankers. We argue that systemic risk is another dimension that this discussion must include. The main message of our work is that when bank failures are contagious then when regulators assign priority rights need also to take into account how the bankruptcy resolution of one institution might affect the survival of other institutions that have acted as its creditors. When the network structure is fixed the solution is straightforward. Other banks should have priority to minimize the risk of their downfall. However, if the choice of policy can affect the structure of the network, policy design becomes more complex.This is a fruitful avenue for future research

Why Do Firms Switch Their Main Bank?: Theory and Evidence from Ukraine

We examine why firms change their main bank and how this affects loans, interest payments and firm performance after switching. Using unique firm-bank matched Ukrainian data, the treatment effect estimates suggest that more transparent and riskier companies are more likely to switch their main bank. Importantly, main bank power, measured by equity holdings, appears to be one of the main drivers of firm switching behavior. Furthermore, we find that firms have lower performance after changing their main bank as they have to contend with higher interest payments. - Financial constraints ; switching ; main bank power ; firm performance ; Ukrain

Separation of Ownership and Control: Delegation as a Commitment Device

This paper provides a theoretical model for explaining the separation of ownership and control in firms. An entrepreneur hires a worker, whose effort is necessary for running a project. The worker\'s effort determines the probability that the project will be completed on time, but the worker receives some unobservable benefi t by continuing his employment in the project. Thus, motivating the worker requires an efficiency wage which is inflated by the private benefit. The entrepreneur would pay out a smaller wage if he could commit to terminate the project if a delay occurs, but this threat is not credible, because the project has positive continuation value. We show that hiring a manager can solve this time-inconsistency issue and reduce the efficiency wage. We extend the model to include managerial moral hazard and we examine the conditions under which separation of ownership and control is more likely to happen. The model is consistent with many of the findings of the empirical literature, while it generates some new predictions too

Market Liquidity, Investor Participation and Managerial Autonomy: Why Do Firms Go Private?

We analyze a publicly-traded firm's decision to stay public or go private when managerial autonomy from shareholder intervention affects the supply of productive inputs by management. We show that both the advantage and the disadvantage of public ownership relative to private ownership lie in the liquidity of public ownership. While the liquidity of public ownership lets shareholders trade easily and supply capital at a lower cost, the liquidity-engendered trading also results in stochastic shocks to a firm's shareholder base. This exposes management to uncertainty regarding the identity of future shareholders and their extent of intervention in management decisions and in turn curtails managerial incentives. By contrast, because of its illiquidity, private ownership provides a stable shareholder base and improves these inputprovision incentives but results in a higher cost of capital. Thus, capital market liquidity, while being a principal advantage of public ownership, also has a surprising 'dark side' that discourages public ownership. Our model takes seriously a key difference between private and public equity markets in that, unlike the private market, the firm's shareholder base, namely the extent of investor participation, is stochastic in the public market. This allows us to extract predictions about the effects of investor participation on the stock price level and volatility and on the public firm's incentives to go private, thereby providing a link between investor participation and firm participation in public markets. Lesser investor participation induces lower and more volatile stock prices, encouraging public firms to go private, whereas greater investor participation encourages younger firms to go public. Moreover, IPO underpricing is optimal because it is shown to lead to a higher and less volatile post-IPO stock price, greater autonomy for the manager and a higher supply of privately-costly managerial inputs

Optimal Delegation and Limited Awareness, with an Application to Financial Intermediation

We study the delegation problem between an investor and a financial intermediary, who not only has better information about the performance of the different investments but also has superior awareness of the available investment opportunities. The intermediary decides which of the feasible investments to reveal and which ones to hide. We show that the intermediary finds it optimal to make the investor aware of investment opportunities at the extremes, e.g. very risky and very safe projects, but leaves the investor unaware of intermediate options. We further study the role of competition between intermediaries and allow for investors with different levels of awareness to coexist in the same market. Self-reported data from customers in the Italian retail investment sector support the key predictions of the model: more knowledgeable investors receive richer menus that are nevertheless perceived to have less products at the extremes